Riley: Japonica, A Mystery to Rhode Islanders

Tuesday, January 27, 2015

Michael G. Riley, GoLocalProv MINDSETTER™

 

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Paul Kazarian

With Greece once again in political turmoil and the possibility of Greece exiting the euro I wanted to check in on a little known group of investors from Pawtucket Rhode Island. Japonica has made international headlines a few times yet they are a mystery to most Rhode Islanders. 

Japonica‘s founder Paul Kazarian made headlines when they announced on June 3, 2013 , that Japonica was  offering to buy as much as €2.9 billion ($3.8 billion) of Greek government debt, about 10 percent of all outstanding bonds. The media at the time handled this news very strangely. It was reported worldwide in the Wall Street Journal, Financial Times  and Business Week.

It quickly became apparent though,  that there was significant skepticism on Wall Street  about who Japonica was and whether or not they had the experience or firepower to pull off this extraordinary attempt.  There were very few stories in Rhode Island media about the bid and the local media seemed to know little about Kazarian or Japonica even though they had offices in Kennedy Plaza and were from Pawtucket.

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Kazarian and Japonica had some early success buying debt in Alleghany International and swapping the debt for undervalued assets. They were not taken seriously at first  but Goldman Sachs Alum Kazarian soon changed their minds. Then Japonica was involved in a few restructuring attempts in the early 1990 with high profile maneuverings around CNW railroad, Borden and SunBeam Oyster.  But this Greek Debt bid was big and unprecedented. Who is Japonica really? How much money do they have? In June 2013 Japonica bid 40 cents on the dollar for debt that was actually trading closer to 45 cents in the market place. Japonicas finance Director Christopher Magarian, who was handling the Greek bond offer said Japonica was  in contact with more than 80 percent of the “large” holders of Greek government bonds eligible to participate in the tender.

Several different news outlets have claimed that Japonica is the second largest owner of Greek Debt behind the estimated $6 billion held by pension funds.  Still today its unclear what Japonica owns and who are its backers. Is their investment in trouble? That seems unlikely with the long term Greek bonds trading around 54 cents on the dollars the bonds have gone up modestly since 2013 but trade well below the 85 cents on the dollar level that Kazarian had predicted for end of 2014.

Our goal is to find as much as we can about Japonica. We know this much, Japonica never discusses its investors or where financing comes from. Japonica isn’t registered as an  investment adviser with the Securities and Exchange Commission, a requirement for most U.S. hedge funds and private-equity firms under the 2010 Dodd-Frank financial regulation law. The firm isn’t required to register, because it doesn’t charge fees or provide investment advice.

(this is the first of a 4 part series)

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Michael G. Riley is vice chair at Rhode Island Center for Freedom and Prosperity, and is managing member and founder of Coastal Management Group, LLC. Riley has 35 years of experience in the financial industry, having managed divisions of PaineWebber, LETCO, and TD Securities (TD Bank). He has been quoted in Barron’s, Wall Street Transcript, NY Post, and various other print media and also appeared on NBC news, Yahoo TV, and CNBC.

 

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